English country banknotes – an introduction

Page three

Regulation and change

Perhaps inevitably, a profession built on such variable
foundations could not be sustained without change. The Bank of
England was able to resume exchanging its notes for coin in May
1821 and immediately stopped issuing £1 and £2 notes. Yet with
little legislation to control banking practices, country banks were
still at the mercy of volatile commercial conditions, often relying
on public demonstrations of confidence to restore their customers’
trust. Sometimes, however, that was not enough: the highest number
of country bank failures occurred in the period 1824 to 1826, a
period of financial speculation and general trading difficulty. As
in 1797, The Bank of England brought some relief by issuing £1
notes, but it was now clear that temporary responses were not
enough. The Prime Minister, Lord Liverpool, scathingly attacked the
free-for-all in which ‘any petty tradesman, any grocer or
cheesemonger, however destitute of property, might set up a bank in
any place’[7].
Certainly, not all local banks were so irresponsible;
nonetheless, the Banking Co-Partnership Act of 1826 did start to
set the profession on a surer footing. Overturning a long-standing
Bank of England privilege, banks beyond a 65-mile radius of London
were now permitted to have more than six partners, enabling them to
increase their capital base and spread their risk.

Further legislation, notably the Bank Charter Act of 1844,
brought both greater control and greater scope for the country
banks. New banks could not issue their own notes; banks already
issuing notes could continue, but the size of the note issue (the
number of notes and the number of denominations) was now regulated.
If banks amalgamated and the new partnership had more than six
partners, it could not issue notes. Over time, the effect of
legislation was to reduce the number of country banking
partnerships, but to increase the potential scale of banks through
expanding networks of branches, so that many might be described as
provincial, rather than country, banks. Issuing banknotes
increasingly became the preserve of the Bank of England, but those
country banks still circulating their own notes did so from a
strong base and often still generated strong local loyalty. The
last of the English country banknotes were issued in 1921 by the
Somerset bank of Fox, Fowler & Co., founded 134 years earlier
in 1787, and which later became part of Lloyds.